Freshworks Inc. (FRSH) stock intrinsic value fair value estimate & owner earnings analysis

Freshworks sells subscription software to businesses. Its employee-experience products (Freshservice, Freshservice for Business Teams, Device42, FireHydrant) handle IT and internal service management, and its customer-experience products (led by Freshdesk) handle customer support. The filing states that substantially all revenue comes from Freshservice and Freshdesk. Revenue was $838.8 million in 2025, up 16% from $720.4 million, after growth of 21% in 2024 and 20% in 2023. About 42% of revenue is from the United States, and net dollar retention (how much existing customers spend year over year) was 108% at the end of 2025, or 104% at constant currency. How we measure earnings. We start from cash from operations and remove two things: the swing in working capital, which for Freshworks is mostly customers paying annual fees up front (deferred revenue added about $61 million of cash in 2025 and is a timing benefit, not profit), and stock-based compensation, which we treat as a real cost. We deduct only the capex needed to stand still, including capitalized software. On this basis the company has lost money for owner-earnings purposes every year since its 2021 listing: about -$1.68 per share in 2021, -$0.86 in 2022, -$0.53 in 2023 and -$0.38 in 2024. In 2025 it turned positive at $0.10 per share ($28 million). That figure is flattered: stock compensation was $146.8 million rather than about $173 million because the former Executive Chairman retired on December 1, 2025, and his unvested awards were forfeited, turning his award into a net $25.8 million credit for the year. Excluding that, 2025 owner earnings were only about $2 million, roughly $0.01 per share. For the first half of 2026, cash from operations was $120.9 million and stock compensation $81.8 million, giving owner earnings of about $31 million by our method, an encouraging step up, but only six months. Starting level. Because the business only recently crossed into positive territory, the earlier years describe a company with far heavier stock compensation, and the last twelve months would chase a single half-year, we set the starting earning power at $0.06 per share (about $17 million a year). This sits between the clean 2025 figure of $0.01 and the first-half 2026 run rate of about $0.22 and gives the recent improvement partial credit until more periods confirm it. Growth-path check: 2025 owner earnings rose from a loss of $115 million to a gain of $28 million, a swing that cannot be expressed as a growth rate; the base case assumes 4% in year one, which does not lean on that swing. Base case: $1.19 per share. We credit only growth already in the bag: existing customers spending a little more each year and staying (constant-currency net dollar retention of 104%, with churn improving in 2025). We use 4% a year for two years, easing to zero by year nine, and then hold earnings flat, on the basis that a subscription base with retention above 100% keeps producing. We do not credit new-customer wins, margin expansion, the FireHydrant acquisition (closed January 2026) or AI product launches, because none of these is secured or a proven, repeatable process at scale yet. Discount rate is 6%. Bull case: $4.55 per share. Here the first-half 2026 owner earnings (about $0.20 to $0.22 a share annualized) prove to be the true level, stock compensation stays near its current $165 million run rate, and existing-customer growth runs at 8% easing to zero by year nine. Bear case: $0.00 per share. Stock compensation returns to the $190 to $217 million range of 2023 and 2024, which on 2025 cash flows would push owner earnings back below zero (about -$0.14 per share). Nothing we can point to in the filings would then generate value for shareholders, and the four prior years of negative owner earnings show this is not hypothetical. We do not put a negative number on it because the filings do not show the company owing more than it is worth. Buybacks: Freshworks repurchased $386 million of stock in 2025 (a $400 million program completed in August 2025) and authorized another $400 million in February 2026. Repurchases mostly offset the dilution from stock awards, and net income of $183.7 million in 2025 included a one-time $151.7 million tax benefit that we ignore. Because our stock compensation deduction and per-share count already reflect this, we do not credit buybacks as extra value. What would make this wrong: stock compensation staying near $165 million while revenue growth keeps slowing (it fell from 21% to 16% in one year) would leave little for shareholders, while continued operating leverage like that of the first half of 2026 would make the bull case the more likely one. Working capital, mainly deferred revenue, also supports cash flow only while billings keep growing; a slowdown would reverse it.